Number crunching query

Albermarle

Nimb said:

dharm999 said:

Is the £24,500 before or after the CARE Scheme contributions?  If before then they count and if not then they don’t.

the £24500 is her gross earnings - it looks like the CARE scheme is not SALSAC so this is before contributions. The £1600 per month is nett after all deductions 

Note that her take home pay is completely irrelevant when calculating how much she can add to a pension.

Tax relief available is only linked to gross pay, and not connected in any way with how much tax you actually pay.

Somebody

I read it's a defined benefit scheme?  If so, contribution amounts are irrelevant.  She needs to find out what the Pension Input Amount (PIA) is for this year and previous years before she can calculate how much headroom there is.  Need to ask the pension administrators. 

DRS1

Somebody said:

I read it's a defined benefit scheme?  If so, contribution amounts are irrelevant.  She needs to find out what the Pension Input Amount (PIA) is for this year and previous years before she can calculate how much headroom there is.  Need to ask the pension administrators. 

I  was thinking that but then I thought the PIA was only for the annual allowance and she is not worried about that.  So it is just her employee contributions which should be deducted from her (taxable?) earnings  to work out how much more she can contribute to her SIPP

zagfles

Nimb said:

Number crunching has never been my strong point and I am seeking the wisdom of the forum.
My partner recently got a lump sum and is looking to drip feed it into her SIPP but we are unsure of the maximum she can put in. She has plenty of carry forward allowance so that isn’t an issue but I am unsure of how much she can put in based on current earnings.
she currently earns £24500 (approx (£1600 nett monthly) and pays into her employer’s CARE scheme at a rate of 6.7% and her employer pays in 23.2%.
Can she (theoretically) put in the full £1600 Into her SIPP every month or does the CARE scheme contributions mean she can only pay in a lower amount.
thanks in advance 

She can contribute her earnings minus her contributions. So if her earnings are £24500 and she contributes 6.7% to the workplace scheme then she can put £22858 gross into a SIPP. That would be £18286 as a net contribution. That's it. Final answer. 

I'm presuming the £24500 is before her contributions, you should see her taxable pay as pay minus contributions so £22858 should be her taxable pay. 

Forget carry forwards. Forget pension input amounts. Forget employer contributions. All irrelevant for her. Ignore anyone who tells you otherwise, so many people don't know what they're talking about, even financial advisers. This is discussed here every week and it always ends up in utter confusion because either the OP or someone else starts banging on about the annual allowance, pension input amounts, carry forwards etc. All irrelevant for someone on her level of income except in very unusual circumstances.

Search the forum for hundreds of threads explaining again and again why. Or just accept the answer above. 

Bobziz

Is her employers scheme a LGPS with linked AVC ? If it is then a combination of AVC and SIPP contributions might be worth looking at.

Nimb

Bobziz said:

Is her employers scheme a LGPS with linked AVC ? If it is then a combination of AVC and SIPP contributions might be worth looking at.

I did look at AVC’s but my partner is looking to retire early so would use the SiPP to finance the gap to SPA. The CARE scheme only pays max amount from SPA and I could not find clear proof that the AVCs could be drawn down earlier than the CARE pension. Is there any difference between adding to a SIPP and AVCs ?

QrizB

The CARE scheme only pays max amount from SPA

At least in principle, the CARE scheme should be actuarially neutral; the reduction for taking it early (or enhancement for taking it late) just makes up for the average person receiving more (or fewer) monthly payments.
So it should all balance out, one way or another.

Bobziz

Nimb said:

Bobziz said:

Is her employers scheme a LGPS with linked AVC ? If it is then a combination of AVC and SIPP contributions might be worth looking at.

I did look at AVC’s but my partner is looking to retire early so would use the SiPP to finance the gap to SPA. The CARE scheme only pays max amount from SPA and I could not find clear proof that the AVCs could be drawn down earlier than the CARE pension. Is there any difference between adding to a SIPP and AVCs ?

So if your partners pension is the same as mine, LGPS, then they'd be able to combine the AVC pot with the main scheme value and take 25% of the overall value tax free. 

For example, if the reduced CARE pension is £10k/anum then the calculation to determine the max tax free cash that could be taken is £10k x 20 = £200k + the value of the AVC pot, say £66k = £266k / 4 = £66k that could all be taken tax free and then fed into an ISA. By contrast,  for £66k in a SIPP, 25% could be taken tax free with the remainder taxed at your partner's marginal rate. I think I have that right, but others will correct if not.

My AVC must be taken at the same time as the main pension, but as above, if you live to average age then the overall pension paid will be the same as having taken it at SPA.

The sweet spot is often a combination of AVC and SIPP, where you contribute into an AVC down to the basic rate tax allowance of £12570 and then put £12570 gross into a SIPP.